Tags: money | management | interest | credit

USA Today: America's Conventional Money Management Wisdom No Longer Applies

By    |   Tuesday, 11 March 2014 12:54 PM

Some long-held beliefs for managing personal finances are no longer valid because the U.S. financial landscape has changed, according to USA Today.

Guest columnist Odysseas Papadimitriou, CEO of the personal finance websites CardHub and WalletHub, said a poor economy and “reactionary regulation” from government are among the factors that have transformed the money landscape.

Papadimitriou noted that the average interest-bearing checking account offers 104 percent more interest revenue these days than the average savings account. He suggested consumers transfer their savings money into higher-yielding checking accounts “at least until interest rates return to normal levels.”

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He also questioned the standard wisdom that it is a better deal to buy vehicles used rather than new because of depreciation.

“Market data show that the average new car loan currently charges 15 percent less interest than the average used car loan and one in five people who plan to keep their vehicles for three years are better off leasing," he said. "In other words, it's important to begin the car shopping process with an open mind and to allow comparison shopping to dictate exactly how you should proceed.”

Papadimitriou said credit unions offer car loan rates that are 40 percent lower than national banks, but that small local banks tend to charge 30 percent higher rates than national lenders.

He also questioned whether Federal Housing Administration loans are still the best choice for many home buyers.

“The better your credit score and the higher your down payment, the more you save with private mortgage insurance relative to an FHA loan,” he said.

For small business owners, it may no longer make sense to use business credit cards or business checking accounts, according to Papadimitriou.

He noted that unlike consumer credit cards, small business credit cards aren't covered by the CARD Act, “which means issuers can raise rates on existing balances whenever they want.”

As for small business checking accounts, Papadimitriou said they are no longer competitive. “While business-oriented accounts do have more features, they charge 28 percent higher fees and offer 84 percent lower interest rates on average than consumer accounts,” he said.

Stateline, a news arm of The Pew Charitable Trusts, reported that only four states, Missouri, Tennessee, Utah and Virginia, require high school students to take a stand-alone personal finance course to graduate.

“Teens are big consumers, (spending) as much as $91 billion in 2011, by one estimate, but few are saving for college or other long-term goals or understand basic financial terms,” Stateline reported.

More than 75 percent of 16- to 18-year-olds claimed they were financially savvy, but less than 20 percent knew what a 401(k) plan was and only 32 percent understood the details of how credit card interest and fees work, a 2011 survey from Charles Schwab & Co. showed.

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Some long-held beliefs for managing personal finances are no longer valid because the U.S. financial landscape has changed, according to USA Today.
Tuesday, 11 March 2014 12:54 PM
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